8.1 Review - Differential Costs, Sunk Costs, and Decision Making

For a cost to be a differential cost, it must be:

A future cost that changes

In a decision regarding whether or not to buy a new truck, the book value of the old truck usually is considered to be:

A sunk cost

Which of the following statements is true when making product and process decisions?

Both quantitative and qualitative factors should be considered

The total-cost approach to considering alternatives includes analyzing:

Both the common and the differential costs of the alternatives

For which decision would a store manager's salary be a differential cost?

Closing the store

Which of the following costs is least likely to be a differential cost?

Depreciation

Costs that can be eliminated in whole or in part by choosing one alternative over another are:

Differential costs

Future costs that change as a result of a decision are:

Differential costs

For which decision(s) would shipping costs be a differential cost?

Increasing the product's sales

Which of the following is true when making product and process decisions?

Only the differential costs should be used to make a decision.

The total-cost approach to pricing products is usually relevant to:

Only the pricing of normal orders for products

A cost that is measured by the benefits forgone from an alternative use of resources is called a(n):

Opportunity cost

Costs that are significant in the decision-making process but are NOT recorded in the accounting records are:

Opportunity costs

The maximum available contributions to profit that have been passed up by using resources for another purpose are:

Opportunity costs

Which of the following costs are always relevant for decision making?

Opportunity costs and differential costs

Costs that are never relevant to a decision because they are always the same are:

Sunk costs

Costs that have already been incurred and cannot be avoided are:

Sunk costs

Evening theater tickets are probably more expensive than matinee tickets because:

Theaters are trying to use up excess capacity and so are considering only incremental costs in determining the price of a matinee

Differential costs are relevant when making which of the following types of decisions?

~The pricing of special orders ~When to drop or add a product ~Determining whether or not to further process different products ALL OF THESE ARE CORRECT